Who will qualify for the windfall profits tax?

[Rick Lee]

The WSJ nailed it.

REVIEW & OUTLOOK

What Is a 'Windfall' Profit?
August 4, 2008

The "windfall profits" tax is back, with Barack Obama stumping again to apply it to a handful of big oil companies. Which raises a few questions: What is a "windfall" profit anyway? How does it differ from your everyday, run of the mill profit? Is it some absolute number, a matter of return on equity or sales -- or does it merely depend on who earns it?

Enquiring entrepreneurs want to know. Unfortunately, Mr. Obama's "emergency"
plan, announced on Friday, doesn't offer any clarity. To pay for "stimulus"
checks of $1,000 for families and $500 for individuals, the Senator says government would take "a reasonable share" of oil company profits.

Mr. Obama didn't bother to define "reasonable," and neither did Dick
Durbin, the second-ranking Senate Democrat, when he recently declared that "The oil companies need to know that there is a limit on how much profit they can take in this economy." Really? This extraordinary redefinition of free-market success could use some parsing.

Take Exxon Mobil, which on Thursday reported the highest quarterly profit ever and is the main target of any "windfall" tax surcharge. Yet if its profits are at record highs, its tax bills are already at record highs too. Between 2003
and 2007, Exxon paid $64.7 billion in U.S. taxes, exceeding its after-tax U.S. earnings by more than $19 billion. That sounds like a government windfall to us, but perhaps we're missing some Obama-Durbin business subtlety.

Maybe they have in mind profit margins as a percentage of sales. Yet by that standard Exxon's profits don't seem so large. Exxon's profit margin stood at
10% for 2007, which is hardly out of line with the oil and gas industry average
of 8.3%, or the 8.9% for U.S. manufacturing (excluding the sputtering auto makers).

If that's what constitutes windfall profits, most of corporate America would
qualify. Take aerospace or machinery -- both 8.2% in 2007. Chemicals had an average margin of 12.7%. Computers: 13.7%. Electronics and appliances: 14.5%. Pharmaceuticals (18.4%) and beverages and tobacco (19.1%) round out the Census Bureau's industry rankings. The latter two double the returns of Big Oil, though of course government has already became a tacit shareholder in Big Tobacco through the various legal settlements that guarantee a revenue stream for years to come.

In a tax bill on oil earlier this summer, no fewer than 51 Senators voted to impose
a 25% windfall tax on a U.S.-based oil company whose profits grew by more than 10% in a single year and wasn't investing enough in "renewable" energy.
This suggests that a windfall is defined by profits growing too fast. No one knows
where that 10% came from, besides political convenience. But if 10% is the new standard, the tech industry is going to have to rethink its growth arc. So will LG, the electronics company, which saw its profits grow by 505% in 2007. Abbott Laboratories hit 110%.

If Senator Obama is as exercised about "outrageous" profits as he says he is, he might also have to turn on a few liberal darlings. Oh, say, Berkshire Hathaway. Warren Buffett's outfit pulled in $11 billion last year, up 29% from 2006. Its profit margin -- if that's the relevant figure -- was 11.47%, which beats out the American oil majors.

Or consider Google, which earned a mere $4.2 billion but at a whopping 25.3% margin. Google earns far more from each of its sales dollars than does Exxon, but why doesn't Mr. Obama consider its advertising-search windfall worthy of special taxation?

The fun part about this game is anyone can play. Jim Johnson, formerly of Fannie
Mae and formerly a political fixer for Mr. Obama, reaped a windfall before Fannie's
multibillion-dollar accounting scandal. Bill Clinton took down as much as $15 million working as a rainmaker for billionaire financier Ron Burkle's Yucaipa Companies. This may be the very definition of "windfall."

General Electric profits by investing in the alternative energy technology that
Mr. Obama says Congress should subsidize even more heavily than it already does. GE's profit margin in 2007 was 10.3%, about the same as profiteering Exxon's. Private-equity shops like Khosla Ventures and Kleiner Perkins, which recently hired Al Gore, also invest in alternative energy start-ups, though they keep their margins to themselves. We can safely assume their profits are lofty, much like those of George Soros's investment funds.

The point isn't that these folks (other than Mr. Clinton) have something to
apologize for, or that these firms are somehow more "deserving" of windfall
tax extortion than Big Oil. The point is that what constitutes an abnormal profit
is entirely arbitrary. It is in the eye of the political beholder, who is usually
looking to soak some unpopular business. In other words, a windfall is nothing more than a profit earned by a business that some politician dislikes. And a tax on that profit is merely a form of politically motivated expropriation.

It's what politicians do in Venezuela, not in a free country.

[RoninLB]

only a few around here are interested in this.

[Chuck Moreland]

I would like to hear the perspective of Obama supporters on his planned windfall profit taxes on oil companies.

Do you support his plan? Can you explain your thinking on this?

[red-beard]

I want my free money!

[Tidybuoy]

I paid $3.50 for a Grande Latte this morning at Starbucks. That's rediculous and somebody's got to do something about this highway robbery.

[Rick Lee]

Originally Posted by Tidybuoy

somebody's got to do something about this highway robbery.

Doctor, heal thyself.

[red-beard]

Repeat that 200 times, and you've paid for your own personal Super Automatic

[DaveE]

I'm a liberal and am against a windfall profits tax. I was also against Bush borrowing money from China to send my wife and I a $1200 check earlier this year. I would much prefer to see some sort of reigning in of the speculators on oil. I think that would go alot further in lowering the price of oil than sending me $1000 that I can give right back to them anyway.

[island911]

If Senator Obama is as exercised about "outrageous" profits as he says he is, he might also have to turn on a few liberal darlings. Oh, say, Berkshire Hathaway. Warren Buffett's outfit pulled in $11 billion last year, up 29% from 2006. Its profit margin -- if that's the relevant figure -- was 11.47%, which beats out the American oil majors.

Or consider Google, which earned a mere $4.2 billion but at a whopping 25.3% margin. Google earns far more from each of its sales dollars than does Exxon, but why doesn't Mr. Obama consider its advertising-search windfall worthy of special taxation?

that's a 'gotcha'.

[DaveE]

But I can Google all day long and it doesn't affect the price of food or shut down factories. There is a BIT of a difference.

[island911]

True...

But, what do you think will happen to the price of fuel if Obama takes their profit?

How many businesses will LEAVE this country?

[DaveE]

I agree. I think the tax is stupid.

[Tidybuoy]

Originally Posted by Rick Lee

Doctor, heal thyself.

Yep, that's how it is supposed to work. Not just for coffee.

[dd74]

Obama is a day late and a dollar short on this one. Good policy - penalizing corporations because they did well in a free trade market owing to supply and demand. A real economy booster...

[dd74]

Originally Posted by Tidybuoy

I paid $3.50 for a Grande Latte this morning at Starbucks. That's rediculous and somebody's got to do something about this highway robbery.

Your cure:
Probably makes better espresso, too.

[RoninLB]

he had to bend to center to bs the center right and center left groups.

he has the far left locked up and even has the jews bs'ed about his Israeli policy even though the far left hates Israel.

using some hate business policy while bending should keep the moveon crowd from starting a firestorm.


This country has been powered by cheap energy forever. The progressive left feels they can fix the issue with a green agenda fostering expensive fuel. Telling China and India to constrain growth for green policies is another story.

markets lead to prices set at the margin. Just the very idea of a surplus at the margin could crash prices.

[Gogar]

Hey if it will put $1000 in my pocket, I'm all for it. I could totally buy a 42" Westinghouse flat screen with that money. You know, stimulate the (Chinese) economy. BARACKIN MY WORLD.

[Gogar]

But, I was thinking. If all those people at poverty-level earnings . . . . say,

10K a year or so . . . . .

Receive an Obama "Windfall Profits" stimulus check for $1000,

That's about a 10% increase in their per annum income . . . .

So . . . ..

Would they then be subject to the 25% "Windfall Profits tax?"

[sammyg2]

Obama is a tool and a fool.
A footool?

He says what he does for one reason and one reason only, because the people who will vote for him are idiots and will eat this crap up. He knows they are idiots and he panders to their lowest common denominator.

The dems must be sooo proud.

[Rearden]

Great article!